The need for additional finance often makes you decide between secured loans and remortgaging the house. You may think of remortgaging as nothing more than an increased tenure of the current contract between you and the lender. However, it is a long process that may involve fees as well.
On the other hand, a secured loan is a more straightforward solution to your money problem. It requires fewer efforts, and you will be relieved from the debt earlier.
Apart from these benefits, here are 6 reasons why you should consider secured loans over remortgaging.
- Faster Processing of Loan
There are times when an unexpected situation requires you to raise money urgently. Remortgaging can take weeks or months for approval. Therefore, it is not an option even to consider in such a situation.
Secured loans can get instant approval based on your credit ratings and the collateral. Many direct lenders in the UK offer instant decisions through online applications. At the same time, others may take a few days to process the application.
In case of emergencies, secured loans are the better alternative. You don’t have to rely on the credit ratings with some lenders. However, the interest rates will be higher for borrowers with a bad credit history.
- No Change in the Existing Mortgage
Many people prefer not to change the existing mortgage arrangement with the lender. In many cases, the new rates are higher than the current rates, which makes remortgaging quite expensive with a long tenure.
You should think twice before signing up for remortgaging with a higher interest rate. The overall cost of the mortgage can increase significantly, even with a slight change in the current agreement. Add the processing fees as well if there are any.
- More Loans to Value
Loan to value is the measure of how much amount you are borrowing to the net worth of the property. If the property value is £100,000 and you are borrowing £80,000, the LTV here is 80%. Your mortgage lender will rarely offer you LTV more than 90%.
It means you will face a hard time getting approval if you are looking for an amount that is more than 90% of your equity. With secured loans, the LTV can go as high as 95% with many lenders.
Therefore, secured loans are your best bet if you want high LTV on the collateral. But they are not offered to every other person. Your finances and credit ratings should be good enough for such a huge loan amount.
- Approval with Bad Credit
A perfect credit score makes you an ideal borrower for any lender. You get better offers with lower interest rates, and approvals are easier to get. However, people with bad credit should not think it is the end of the road for them.
Both secured loans and remortgaging, options are available for them. The difference between the two is the flexibility they offer. The borrower can decide the repayment period, loan amount, and deposit limit to some extent.
- Available for Self-Employed
Mortgage lenders have a strict policy while assessing the loans on the affordability of a potential borrower. They can check your account status from the last 1 to 3 years to make a decision. For newly self-employed people, it gets extremely hard to get past the approval stage.
Your chances of approval will take a hit even if your business has gone through some structural changes. The remortgage application might be a waste of effort as you might fail to meet the eligibility criteria.
As mentioned above, secured loans are more flexible and less lenient when it comes to approval. You will get approval as long as you have collateral or enough equity over the house.
- Interest-Only Basis Repayments
Interest-only repayment is the arrangement where the borrower repays only the interest, not the capital amount. You can start the repayment as soon as you are financially stable. It is ideal for people who are either unemployed or income has dipped.
Mortgage lenders rarely offer such an arrangement to the borrowers. You have to pay the installments that include interest and principal amount. Only a few secured loan lenders will provide you with interest-only basis repayment.
The Cost of Secured Loans
If you have made your mind to take a secured loan, you might be wondering about its total cost. Well, it depends on the lenders, their terms, and the interest rate offered to you. There will be a few additional fees with the application process.
Not to mention there is no guarantee you will get a lower interest rate than remortgaging. There will be still the risk of the property being acquired by the lender.
In the end, it depends on your current mortgage arrangement and the financial situation to decide between the two options. You must check offers from different lenders before you make a decision. You can avail better terms from the current lender if you approach with a competitive offer from other lenders.